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Retiree Groups Promise Political Fallout for Mich. Pension Tax

Groups representing Michigan's public and private retirees continued to push their opposition to a new pension tax policy approved this year, threatening political repercussions in the next election for legislators who supported the tax.

Groups representing Michigan's public and private retirees continue to push their opposition to a new pension tax policy approved this year, threatening political repercussions in the next election for legislators who supported the tax.

Eric Schneidewind, president of the Michigan AARP, said in a statement that seniors would remember the pension tax in 2012 if it is allowed to stand, adding that legislators who voted for it would be held accountable. Officials from the Michigan Association of Retired School Personnel, Michigan State Employee Retirees Association and the National Association of Retired Federal Employees, Michigan Federation of Chapters, joined the Michigan AARP in its statement, released Friday.

"The Legislature has one last chance to get this right," Schneidewind said, noting that seniors "make up one of the most active and powerful voting blocs in the state." The group estimated that 1.5 million public and private pension recipients would be affected by the tax policy.

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Under the law, pensions would be taxed as personal income, subject to the state's 4.35 percent tax on federal adjusted gross income, according to the Detroit News, by removing a income tax exemption for public pensions and increasing taxes on private pensions. The policy, which would take effect on Jan. 1, 2012, is expected to bring in about $230 million in the current fiscal year and $343 million in fiscal year 2013, according to the newspaper.

The Michigan Supreme Court upheld most key aspects of the law in November, the News reported, after Gov. Rick Snyder asked the court to rule on its constitutionality as a means of preempting any legal challenges.

"It will provide for the long-term structural stability of the state's budget while minimizing the impact on current retirees and seniors," Snyder said in a statement following the court's ruling.

The high court did find one element of the tax unconstitutional: basing eligibility for tax exemptions on wealth, according to the News. Snyder estimated that finding would reduce the revenue created by the tax in 2012 by about $60 million, creating a shortfall in the state's budget. He said he would work with the state legislature to close that gap.

The repeal of the previous public pension income tax exemption passed 56-50 in the Michigan House earlier this year, according to MichiganVotes.org, and 19-19 in the Senate. All the votes in support came from Republicans; all opposing votes came from Democrats along with six Republicans in the House and seven Republicans in the Senate. Snyder signed it into law in May.

Legislation to eliminate the new pension tax policy has been introduced in both the Michigan House and Senate. State Rep. Jim Townsend and state Sen. Bert Johnson, both Democrats, are the primary sponsors of those bills, which were introduced this summer but have received renewed attention after the Supreme Court's ruling. The AARP and the other groups joining in its statement Friday urged the legislature to pass those proposals.